Let me begin with some mortgage interest rate perspective. In October 1981, the average 30-year conforming rate peaked at 18.63%. OUCH! In January 2021, rates hit rock bottom at 2.65%. Welcome to the roller coaster of mortgage rate fluctuations! If you were fortunate (or smart) enough to refi or buy a home in January 2021, lucky you! What does this mean? Mortgage rates go up and down, just like a roller coaster. If you’re thinking about purchasing a home, just do it. The advantages of being a homeowner far outweigh being a renter and throwing your money away to a landlord.
It should come as no surprise that the current financial climate plays a huge role in what happens in the housing market. Here in early summer of 2024, 30-year conforming loans are floating between 6.75 and 7.25% depending on your lender. 15 year is @ 6%, 30-year FHA @ 5.75% and a 30-year VA loan is 5.95%. The Fed chairman recently said that he expects rates to decrease three more times in 2024, which is great news for all home buyers!
But watch out! The purchase market is going to escalate this summer and we’ll be seeing more multiple offers and higher home values in many areas across America. Great for sellers! Not so great for buyers competing for homes in this low inventory housing environment. The good news is, as the mortgage rates decrease, more buyers, especially first-time home buyers, will be able to afford a home.
Let’s explore a few ways in which these lower interest rates impact the world of home mortgages.
- Lower Interest = Higher Affordability. The most obvious impact of these lower interest rates is an increase in overall affordability. Homeownership becomes increasingly accessible as interest rates decrease. As of April 1, 2024, the average conforming loan dropped below 7% from a high of just under 8% in October 2023. This makes it easier for thousands of homebuyers to afford a home that had been out of reach.
- Supply and Demand, Baby! Run, don’t walk! These recent shifts in the housing market have people jumping at the opportunity to buy a new home or even refinance at a lower rate! As these rates continue to decrease, prospective homebuyers are chomping at the bit to apply for loans that they might not have been able to qualify for previously. In fact, applications to purchase a home mortgage rose by a considerable 9% in the first quarter of 2024.
- Refinancing Reimagined. With the main goal of refinancing being to reduce both your interest rate and monthly payment, many homeowners will be seizing this opportunity of lower interest rates to refinance their mortgage loan payments in 2024. In using these trends to their advantage, smart homeowners can save significantly over the course of their loan, or alternatively shorten their loan term if they switch to a 15 or 20 year loan! This is great news as the refinancing surge will ultimately benefit not only individual homeowners, but the entire U.S. economy.
- Increased Affordability! Can you hear the cheers coming from the thousands of first-time home buyers across America? When mortgage rates increase, many people can’t afford their first home. Keep in mind that the first-time home buyers move the entire market. Home sales have a domino effect. The first-time buyers purchase the entry level priced homes, and those sellers become home buyers on the next level up. Then those 2nd tier sellers become buyers on the next level up. This is home sales 101. When 1st time buyers stall because of rising mortgage rates, the entire housing market slows, which affects the entire American economy.
- Debt consolidation. Credit card levels have been escalating since the pandemic. When mortgage rates decrease, more people do a cash-out refinance to pay off the credit cards rates in the 20%-29% range. They save money, and then spend more, which stimulates the economy.
- My crystal ball. From the research I’ve done, it looks like 30-year conforming rates will be in the lower 6’s and maybe even edge into the high 5’s in 2024 and early 2025. If, and when this happens, a flood of 1st time home buyers will be able to afford their first home and the market is going to be busy! That’s good for home buyers, realtors®, and everyone in the real estate industry.
Sit tight America! The real estate market is headed back toward a balanced level. As inventory increases, buyers won’t face multiple offers and those annual 5%-20% home value increases will be in the rearview mirror. A steady real estate market benefits everyone!
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